Applied: 300mm, 90nm crossover has arrived

August 18, 2004 – Riding high atop the equipment industry’s upcycle, Applied Materials, Santa Clara, CA, posted a profit of $440.6 million in its fiscal 3Q04 ended August 1, erasing a net loss from a year ago of $36.8 million (which included $66.2 million in charges).

Revenues more than doubled from $1.09 billion to $2.24 billion; sequentially, revenues rose 11% from 2Q04, while the net income jumped 18%. Gross margins increased from 31.7% a year ago to 47.4%.

New orders of $2.46 billion represent growth of 11% sequentially and 134% year-on-year. DRAM represented 32% of system orders, foundries 41%. Two-thirds of total system orders were for 300mm tools, up from 51% in 2Q04. Three orders were worth at least $100 million, down from six in 2Q, while eight orders of $50-$100 million increased from two in 2Q.

CFO Joe Bronson noted particular strength in the Asian segment, with an ongoing 300mm buildout. He also pointed to “still good strength from Japan, and definitely some from Taiwan.” The backlog stands at $2.99 billion, up from $2.80 billion at the end of 2Q04.

More than 50% of revenues were for 90nm and below, a crossover point that CEO Mike Splinter called “is a milestone for the semiconductor industry.” Most logic manufacturers are transitioning to copper, although Splinter indicated a number of DRAM firms have not yet done so. He expressed confidence that the major 130nm buildout has moved to 90nm, and there won’t be any pullback from that. “It’s 90nm from here on out,” he said — “90nm, 300mm, that’s the combination.”

Bronson said margins have grown steadily every quarter since 2Q03, but to continue to push margins higher, “we need more revenue, more input into the system…more spares business for our tools we have out there,” he said. Bronson indicated that this has part of the thinking behind Applied’s recent service-oriented deals — take advantage of its global distribution capability. “The more we can put through that system, the better our margins will get,” he said.

For fiscal 4Q04, Applied projects orders will be up 5%, with revenues increasing up to 5%, and earnings of 24¢-26¢/share. Applied also will resume stock repurchase activity in 4Q04, targeting an estimated $300-$500 million worth of shares. Splinter said capital expenditures are expected to continue, with fab investments in 2H04 and beyond for the continued 300mm buildout. “65nm will be increasingly important in 2005,” he added.


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